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Aurora Cannabis to lay off 700 staff, expects $60M charge, plans to close 5 facilities

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The symbol for Aurora Cannabis appears above a trading post on the floor of the New York Stock Exchange as the Canadian company lists on October 23, 2018. Aurora Cannabis Inc. says it incurred a loss in its second quarter that was fueled by the company taking a recent $1 billion writedown. The Edmonton-based cannabis business says in the period ended Dec. 31 its net revenue fell by 26 per cent to reach about $56 million, down from roughly $75 million in the prior quarter. THE CANADIAN PRESS/AP, Richard Drew
(THE CANADIAN PRESS)

Aurora Cannabis (ACB.TO)(ACB) plans to close five facilities, lay off roughly 700 workers, and expects a $60 million charge in the coming quarter, the company said Tuesday.

The Edmonton-based cannabis producer said the moves are part of its business transformation plan announced in February, which resulted in the loss of about 500 jobs at the time and a $1 billion writedown.

An Aurora spokesperson confirmed to Yahoo Finance Canada that “approximately 700’ workers will be laid off as a result of Tuesday’s announcement.

“These changes include an approximate 25 per cent reduction in Aurora's (selling, general and administrative staff), most with immediate effect, and an approximate 30 per cent reduction in production staff over the next two quarters,” the company stated in a release.

Aurora said the recent retirement of president Steve Dobler was part of the company’s “corporate headcount rationalization.”

The five facilities slated for closure include Aurora Prairie (Saskatoon), Aurora Mountain (Cremona, Alta.), Aurora Ridge (Markham, Ont.), Aurora Vie (Pointe-Claire, Que.) and Aurora Eau (Lachute, Que.). The company said these sites are “smaller scale” facilities within its cultivation footprint.

As a result of the headcount reductions and facility shutdowns, the company expects to take an asset impairment charge of up to $60 million during the fourth quarter of 2020. The company also expects to record a charge of up to $140 million over the value of inventory, predominantly trim, “to align inventory on hand with near-term expectations for demand.”

Trim refers to the excess leaves snipped from the buds of marijuana plants. The by-product is used to make extractions, tinctures, hash and edibles.

“This has not simply been a cost cutting exercise. We have undertaken a strategic realignment of our operations to protect Aurora's position as a leader in key global cannabinoid markets, most notably Canada,” chief executive officer Michael Singer stated in the release.

“Both the Canadian facility rationalization and inventory revaluation are expected to improve gross margins and accelerate our ability to generate positive cash flow. We believe that we now have the right balance for the long-term success of Aurora.”

The company said it will consolidate production at its Aurora Sky (Edmonton), Aurora River (Bradford, Ont.), Whistler Pemberton (Pemberton, B.C.), and Polaris (Edmonton) facilities by the end of Q2 2021, while ramping up production at site in Denmark to service European medical markets.

Cowen analyst Vivien Azer praised Aurora’s cost-cutting decisions, calling Tuesday’s announcements “the right steps to turn around the business” without abandoning the company’s status as large-scale producer. Aurora estimates it will have the capacity to support the next two to three years of growth.

“While the shuttered facilities produce 15 to 20 per cent of the company's volumes, they are responsible for about 40 per cent of its production costs,” she wrote in a research note. “With a lean cost structure and a line of sight towards strong gross margins, today's announcement gives Aurora incremental head-room to reach its $51 mm EBITDA targets in FY21.”

Aurora is expected to report forth quarter 2020 financial results in early September.

Toronto-listed shares were up 0.49 per cent to $18.64 at 2:44 p.m. ET on Tuesday. The stock has fallen more than 84 per cent in the last 12 months.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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